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Recession fears mount as Wall Street stocks slip, near a bear market

The S&P 500 is down nearly 19% from a record high
Wall Street
Posted at 5:42 PM, May 19, 2022
and last updated 2022-05-19 20:42:48-04

Stocks fell in morning trading on Wall Street on Thursday, deepening a slump for major indexes as persistently high inflation continues to weigh on the economy.

The S&P 500, the benchmark for many index funds, is coming off of its biggest drop in nearly two years. It fell another 0.9% and is down nearly 19% from the record high it set early this year. That's just shy of the 20% point that defines a bear market. The last bear market happened just two years ago, following the outset of the virus pandemic.

The Dow Jones Industrial Average fell 400 points, or 1.3%, to 31,094 as of 11:07 a.m. Eastern and the Nasdaq fell 0.1%.

SEE MORE: Why Is Inflation On The Rise Globally?

Rising interest rates, high inflation, the war in Ukraine and a slowdown in China’s economy have caused investors to reconsider the prices they’re willing to pay for a wide range of stocks, from high-flying tech companies to traditional automakers. Investors have been worried that the soaring inflation that’s hurting people shopping for groceries and filling their cars up is also walloping company profits.

Target fell another 5% a day after losing a quarter of its value on a surprisingly weak profit report. Department store company Kohl's was mostly unchanged after joining the list of retailers either reporting weak earnings or cutting forecasts because of pressure from inflation.

Wall Street is also worried about the Federal Reserve's plan to fight the highest inflation in four decades. The Fed is raising interest rates aggressively and investors are concerned that the central bank could cause a recession if it raises rates too high or too quickly.

The 10-year Treasury pulled back to 2.81% from 2.88% late Wednesday, but it has been generally rising as investors prepare for a market with higher interest rates. That has also pushed up mortgage rates, which is contributing to a slowdown in home sales.

The pile of concerns on Wall Street has made for very choppy trading and big swings between gains and losses within any given day.

SEE MORE: The Fed To Fight Inflation With Fastest Rate Hikes In Decades

Technology stocks have been some of the most volatile holdings. The sector includes heavyweights like Apple that have lofty valuations, which tend to push the market more forcefully up or down. The sector has been hit especially hard by the Fed's policy shift to raise interest rates. Low rates help support investments considered riskier, like tech stocks, and higher rates lessen the incentive to take that risk.

Technology stocks were once again among the bigger weights holding the market down on Thursday. Cisco Systems slumped 13.2% after the seller of routers and switches cut its profit forecast amid supply chain constraints.

Household goods companies, grocery store operators, and food producers fell broadly. General Mills fell 3.5% and Tyson Foods fell 1.3%.

Retailers and other companies that rely on direct consumer spending were mostly mixed. Bath & Body works sank 9.2% after cutting its profit forecast for the year. Amazon rose 1.4%.

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